The Euro continues to face pressure against Sterling ahead of a no-confidence vote in France’s Prime Minister Michel Barnier.
Lawmakers in Paris will begin debating the motions at 4 pm on Wednesday, with voting expected shortly after. Barnier is anticipated to lose the vote, as Marine Le Pen's RN party has pledged to collaborate with the leftist bloc to remove him from office.
This move follows Barnier's use of a constitutional clause to push through his budget aimed at addressing France's financial issues.
If Barnier loses, he will submit his resignation to President Emmanuel Macron, leading to a new phase of political uncertainty in Europe's second-largest economy.
“Imminent political turmoil and concerns about delays to fiscal consolidation can further drive up the French‑German bond spread and weigh on EUR/USD in our view,” said Commonwealth Bank analyst Kristina Clifton.
Ahead of the vote, EUR/USD stood at 1.0516 at the time of writing, while the EUR/GBP exchange rate was at 0.8287, with GBP/EUR nearing 2024 highs at 1.2064, Pound Sterling Live reports.
In a press conference on Tuesday, Barnier expressed hope that he could survive the vote.
“I think it's possible there will be a reflex of responsibility. I think that the country's higher interest, the common good, the national interest, mean something,” Barnier stated.
If Barnier were to somehow win, Euro exchange rates could recover. However, with the RN party committed to voting him out, Barnier is likely to become the shortest-serving Prime Minister of the Fifth Republic.
After his resignation, the existing government would remain in a caretaker role, managing essential spending and taxation functions to keep the state running.
Furthermore, France's debt costs have not yet reached crisis levels, and they are expected to decrease once Barnier is removed and the caretaker government assumes its role.
“The market is not willing to push French bonds to breaking point at this stage,” according to Kathleen Brooks, research director at XTB.
Meanwhile, Eurozone countries benefit from the support of the European Central Bank (ECB), which will always step in as a backstop to prevent a significant deterioration in any country's debt.
“The ECB has come a long way since the GFC: now it has the tools (TPI), the template (UK Gilt crisis) and the motive (protect repo markets) to stem a market rout,” said TS Lombard analyst Davide Oneglia.
This is likely why the Euro hasn't dropped to new lows against either the Dollar or Pound despite recent developments. It also suggests that the Euro could recover once 'peak pessimism' subsides.